Backcasting is not a novel concept. It has been around for many years but has rarely been discussed in relation to its practical application for venture capitalists. Entrepreneurs are to be viewed as visionaries of the future that have traveled to the present to tell us what the future looks like. In viewing preposterous ideas with this concept in mind, what initially seemed crazy will start to make more sense. Backcasting is a powerful concept, and in this article, I will take you through the practical steps you can take to open your mind to radical innovation.
1 — The Vision
Venture capitalists often highlight that entrepreneurs should have a grand vision for their company and the future. This is the first step to successful backcasting; imagining an ideal future independent of what our present looks like. This can be immensely challenging as we are often trained to look for inefficiencies in the market and incrementally improve things that already exist. In the 1800s, people imagined that mechanical horses would be our main mean of transportation in the future. We tend to extrapolate from our present which, at best, results in incremental improvements to existing conditions. If we want to think big and be truly innovative, we have to imagine an ideal future that disregards our current state.
“If I had asked people what they wanted, they would have said faster horses.” — Henry Ford
Breakthrough ideas are usually not simply improvements of what already exist but rather radical imaginations of what ought to be. Once this vision is drafted, one will want to work backwards, plotting out the steps necessary to get to this future. So, when presented with a radical idea, take a step back and ask yourself if this might be an alternative, ideal future for the entrepreneur and many others…
2 — Why Now?
Once the ideal future is clear to us, we can start thinking about how to get there and what has to happen before the ideal future can come to fruition. Perhaps a technology has to get cheaper, perhaps people have to get comfortable with an idea, or perhaps we need to see regulatory changes… Enter inflection points.
I first heard about inflection points in this context from Shawn Xu and Mike Maples of Floodgate. So what does inflection points actually mean?
“A time of significant change in a situation; a turning point.”
According to the folks at Floodgate, there are four different types of inflection points that see new markets open up and breakthrough ideas come true:
- Technology inflection — a technology becomes either cheaper, better, or both. Example: Telecommunication technology, GPS, computers, internet etc.
- Adoption inflection — there is a radical change in the adoption rate of some technology or product. Example: smartphones, computers, online courses, e-readers, automobile transportation etc.
- Behavioral inflection — People change their attitude toward a certain technology, product, or way of doing things. Example: commercial aviation, smartphones, telemedicine, work from home etc.
- Regulation inflection — A regulatory change opens up some opportunity in the market. Example: decriminalization of marijuana, air commerce act of 1926, demonopolization of petroleum, etc.
These inflections are important to consider because if there are no inflections relating to one’s ideal future, that future is too remote to rationally pursue. Uber was not a success because of unimaginable insight. It was a success because the timing was right; GPS accuracy (technological inflection) had become very accurate and smartphone usage (adoption inflection) was increasing at an exponential rate.
The first chatterbot, Eliza, was developed in 1994, yet it is only in 2018 that Alexa has become popular due to the breakthrough improvements in AI and deep learning. Building a successful company often comes down to timing.
Backcasting X First Principles
The idea of backcasting is closely related to Elon Musk’s description of operating based on first principles; boiling things down to fundamental truths and building upon those. When looking at the different inflection points, we must isolate them in imagining the ideal future. Who would start a car company if all the previous attempts over the last 50 years failed? Elon Musk. He was able to step away from the current market and think about the ideal future using the fundamental truths available; people are becoming more environmentally conscious (behavioral inflection), and batteries are developing quickly, making range and speed less of an issue (technological inflection). Combining these two ideas can be a way to make preposterous ideas seem perfectly reasonable.
Putting it together
If you ask me what the ideal future of travel is, I would say ‘teleportation.’ It seems like that would be awfully convenient, but is it rational to pursue building a teleportation company right now? Scientists succeeded in teleporting three-dimensional quantum states for the first time in late 2019 (whatever that means) but I would be delusional to think that we can teleport people in the near future. The ideal future has to be backed by reasonable inflection points in order to present an attractive opportunity worth pursuing. An ideal future absent of any near term inflection points is not an opportunity worth of pursuit. On the flip side, a solution derived from the existing market is most likely only to result in incremental improvement which in VC is not what one should be looking for. An incremental improvement is less likely to have the 10X+ potential that many VCs state to be a criteria and is less likely to change the world, in a radical way, for the better.
- Imagine the ideal future with the entrepreneur.
- Work backwards to the present in identifying what has to happen for us to get to the ideal future.
- Assess whether there are any relevant inflection points that build upon those steps.
- Finally, assess the first principles involved in the idea and integrate them with the inflection points.
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